asset acquisitions - Jackson Walker LLP

diligence analysis (which typically continues up to the closing). The seller may desire tocarefully review the breadth of this right because the buyer’s decision to exclude assets maymaterially change the deal for the seller, particularly if the seller is exiting the business. Forexample, there may be assets which the seller would no longer want or which are worth lessthan the related operating costs or real estate which may be subject to environmentalproblems. If the seller agrees to this kind of provision, the seller may insist upon a right torenegotiate the purchase price depending on the assets left behind. As an alternative to thepurchase price renegotiation, the seller may request limitation of the proposed exclusionright so that the buyer could not exclude certain assets, which could include assets thatneither party wants. Whether the buyer will have the ability to insist on the inclusion of thisprovision is a matter of the parties’ relative bargaining positions.2.3 CONSIDERATION.The consideration for the Assets (the “Purchase Price”) will be (i) $_________ plus orminus the Adjustment Amount and (ii) the assumption of the Assumed Liabilities. In accordancewith Section 2.7(b), at the Closing the Purchase Price, prior to adjustment on account of theAdjustment Amount, shall be delivered by Buyer to Seller as follows: (i) $________ by wiretransfer; (ii) $________ payable in the form of the Promissory Note; (iii) $________ paid to theescrow agent pursuant to the Escrow Agreement; and (iv) the balance of the Purchase Price by theexecution and delivery of the Assignment and Assumption Agreement. The Adjustment Amountshall be paid in accordance with Section 2.8.COMMENTIn Section 2.3 of the Model Agreement the consideration to be paid by the Buyer forthe assets purchased includes both a monetary component and the assumption of specificliabilities of the Seller. In addition to the consideration set forth in Section 2.3, the Sellerand the Shareholders may receive payments under noncompetition and employmentagreements. If an earnout, consulting, royalty or other financial arrangement is negotiated bythe parties in connection with the transaction, additional value will be paid.The amount a buyer is willing to pay for the purchased assets depends on severalfactors, including the seller’s industry, state of development and financial condition. Abuyer’s valuation of the seller may be based on some measure of historical or futureearnings, cash flow, or book value (or some combination of revenues, earnings, cash flow,and book value), as well as the risks inherent in the seller’s business. A discussion ofmodern valuation theories and techniques in acquisition transactions is found in Samuel C.Thompson, Jr., A Lawyer’s Guide to Modern Valuation Techniques in Mergers andAcquisitions, 21 THE JOURNAL OF CORPORATION LAW, 457 (Spring 1996). Themonetary component of the purchase price is also dependent in part upon the extent to whichliabilities are assumed by the buyer. The range of liabilities a buyer is willing to assumevaries with the particulars of each transaction and, as the Commentary to Section 2.4observes, the assumption and retention of liabilities is often a heavily negotiated issue.The method of payment selected by the parties depends on a variety of factors,including the buyer’s ability to pay, the parties’ views on the value of the assets, the parties’tolerance for risk, and the tax and accounting consequences to the parties (especially if thebuyer is a public company). See Section III.E in the introductory text and the commentary toSection 10.2 for a discussion of the tax aspects of asset acquisitions and the Comment to3148166v1- 46 -